For the first time ever, the future of the US pension system, social security, looms large as an election issue.

That is surprising, if only because social security has been the one US benefit that has been - up to now - politically untouchable.

Under the social security system, the cornerstone of Franklin D. Roosevelt's New Deal in the l930s, US citizens receive substantial retirement benefits when they stop working, based on their average income.

It is far more generous than most US benefits for those in work, and retired individuals also receive health coverage through Medicare, the government funded health insurance system which covers most hospital and doctors' bills for the elderly.

With the elderly a growing proportion of the population, and given that they are more likely to vote than other US citizens, the grey lobby has had a powerful influence on politics.

Reform needed

But now the Republican candidate, George W. Bush, has taken the considerable risk of suggesting that basis of social security should be revised - with individuals being allowed to put a proportion of their contributions into their own individual stock market fund instead.

Mr Bush says that individuals will gain a higher return from the stock market - around 6-8% in the long term - than they get through the accumulation of social security benefits.

And he pledges that the government will make up any shortfall if the stock market falls.

In the past, such suggestions would have been anathema to many working class Americans.

And Mr Gore lost no time in attacking them as "risky," and accusing Mr Bush's own economic advisor, Lawrence Lindsay, of having withdrawn his money out of the stock market.

But now many more Americans own stock than ever before.

For those working for private companies, most companies have abandoned final salary pensions. Instead, they allow workers to set aside part of their salary into a fund linked to stocks or Treasury bonds.

Over half of all US households now have these 401(K) plans, which has doubled the number of people having a direct stake in the stock market.

And the extraordinary boom in the stock market over the last few years, which has created millions of paper millionaires, has also made stock market investment more attractive.

Mr Gore has been forced to suggest his own plan, which would give extra tax breaks for American savings accounts, without touching the principle of social security.

Saving social security

One impetus for the reform is the fact that the system has been in financial difficulties for some time

The basic problem is that the pay-as-go system of funded retirement pensions is becoming increasingly unsustainable as the retired population grows in relation to the number of workers.

Even the American Association of Retired Persons, one of the most powerful lobby groups in Washington, and a strong backer of the social security system, is now backing reform.

One possibility, raised by the Clinton Administration, was to invest some of the government trust fund surplus in the stock market.

However, many Republicans, and other financial Conservatives like Federal Reserve Chairman Alan Greenspan, objected to this proposal because it might give the government too much power over the market.

But other solutions - such as raising the retirement age further or raising the contributions individuals must pay - are not politically viable.

The US retirement age is already being raised from 65 to 67 in a series of phased steps.

Nevertheless, official projections suggest that the system will run out money in 2037.

As a result, President Clinton, with the support of Al Gore, has proposed using much of the budget surplus projected over the next ten years to ensure the long-term survival of the system.

This social security "lock-box" has been accepted by Congressional Republicans.

Even so, the booming economy means that the budget surplus is still growing, freeing more money for social experiments.

The latest projections from the Congressional Budget Office and the White House suggest that over the next ten years there could be as much as $2 trillion in non-social security surpluses.

That has made it easier for both candidates to suggest further tax breaks for the elderly - the section of the population that is more likely to vote than any other.

Risks and rewards

Experts say that George Bush's plan carries considerable political and economic risks.

The costs of transition could be considerable, as the government would have to find extra revenue to fund current social security payments to compensate for those withdrawing their contributions.

And people with low incomes could find that most of their investment in the stock market is eaten up in administrative costs..

Mr Bush hopes to appeal to a younger generation who is sceptical of the solvency of the social security system.

But he could enrage elderly voters if they believe that his plan could put their pensions at risk.

So far, his plan is proving surprisingly popular, forcing rival Al Gore to propose a tax-free savings account.

Welfare reform, however draconian, affected only a small number of Americans.

But the stakes are much higher in social security reform, the largest spending programme in the Federal budget.